Yahoo Finance Host Hotels & Resorts, Inc. (NASDAQ:HST) Q1 2024 Earnings Call Transcript
Host Hotels & Resorts, Inc. (NASDAQ:HST) Q1 2024 Earnings Call Transcript May 2, 2024
Host Hotels & Resorts, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, and welcome to the Host Hotels & Resorts First Quarter 2024 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to Jaime Marcus, Senior Vice President of Investor of Investor Relations. You may begin.
Jaime Marcus: Thank you, and good morning, everyone. Before we begin, please note that many of the comments made today are considered to be forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and we are not obligated to publicly update or revise these forward-looking statements. In addition, on today's call, we will discuss certain non-GAAP financial information, such as FFO, adjusted EBITDAre and comparable hotel level results. You can find this information together with reconciliations to the most directly comparable GAAP information in yesterday's earnings press release and our 8-K filed with the SEC and in the supplemental financial information on our website at hosthotels.com.
With me on today's call are Jim Risoleo, President and Chief Executive Officer; and Sourav Ghosh, Executive Vice President and Chief Financial Officer. With that, I would like to turn the call over to Jim.
Jim Risoleo: Thank you, Jaime, and thanks to everyone for joining us this morning. In the first quarter, we delivered adjusted EBITDAre of $483 million and adjusted FFO per share of $0.60, which includes $10 million of business interruption proceeds from Hurricane Ian. Excluding the business interruption proceeds, our adjusted EBITDAre was 7% above the first quarter of 2023, and our adjusted FFO per share was 8% above last year. We delivered a year-over-year comparable hotel total RevPAR improvement of 50 basis points, underscoring the continued strength of out-of-room revenue while comparable hotel RevPAR declined 1.2%. First quarter RevPAR faced headwinds from tough year-over-year comparisons, particularly in Maui. The year-over-year decline in Maui RevPAR had an actual drag of 170 basis points on our first quarter portfolio RevPAR.
However, this understates the true impact of the wildfires as we would have expected Maui to contribute 140 basis points to portfolio RevPAR growth in the first quarter given the renovation disruption at Fairmont Kea Lani in 2023. As a result, the total estimated impact of the wildfires on first quarter RevPAR is 310 basis points. RevPAR was also impacted by unseasonable weather in Florida, Arizona and California unanticipated renovation delays at the Singer oceanfront resort. Despite these headwinds, our first quarter comparable hotel EBITDA margin of 31.2% and was 30 basis points above 2019. As a reminder, our first quarter operational results discussed today refer to our comparable hotel portfolio, which excludes The Ritz-Carlton, Naples in 2024.
In addition, while Alila Ventana Big Sur is included in our first quarter results, it is currently closed and it has been removed from our comparable hotel set for the remainder of the year after a portion of Highway 1 collapse in late March. At this time, we expect the resort to reopen towards the end of the second quarter. During the first quarter, our portfolio results continued to be impacted by the evolving nature of demand on Maui. Our risk management team has reached an agreement with our insurance carriers and we are now including between $18 million and $22 million of business interruption proceeds related to the Maui wildfires and our full year 2024 guidance. Turning to business mix. It is worth noting that this quarter, we are referring to revenue growth for our business mix segment as revenue per available room as a result of the leap year.
Group revenue per available room grew 4% in the first quarter, driven by room nights. Our properties booked over 500,000 group room nights in the year for the year bringing our definite group room nights on the books for 2024 to $3.6 million, with total group revenue pace up 7% compared to the same time last year. In the first quarter, business transient revenue per available room grew 5%, driven by both rate and room nights and leisure remained steady with transient rates at our comparable resorts up 52% compared to 2019, including our 3 Maui resorts. Briefly touching on out-of-room spend. Food and beverage revenue per available room grew 2% in the first quarter compared to last year, driven by an all-time high banquet and catering contribution.
Other revenue per available room grew 6%, driven by elevated attrition and cancellation fees. It is worth noting that nearly 40% of our total revenue in 2023 came from food and beverage and other revenue and our 2024 guidance assumes a similar proportion. Since 2017, non-room revenue has steadily grown as our portfolio has shifted towards more complex, higher-end properties, which benefit from substantial out-of-room spend from both guests and non guests. In fact, there may be instances that the property teams at our hotels strategically forgo [indiscernible] room rate as they focus on the total revenue picture. The Ritz-Carlton, Naples is a clear example of the positive impact out-of-room spending. In the first quarter, the resort achieved RevPAR of $900, which is only half of its $1,700 total RevPAR.
As a result of our meaningful expansion and transformational renovation, transient rates in the quarter were up 40% compared to 2019 driven by club level rooms and food and beverage revenue grew 38%, driven by outlets. In March, the resort posted its best revenue month ever, aided by Easter week's RevPAR, which was 45% above the competitive set. In addition, the resort was recently named to Travel and Leisure's It List, and we are proud to say that it truly is firing on all cylinders. Turning to capital allocation. Yesterday, we announced the acquisition of the fee simple interest in a 2-hotel complex comprising the 215 room, 1 Hotel Nashville, in the 506 room Embassy Suites by Hilton Nashville Downtown were approximately $530 million in cash.
The acquisition price represents a 12.6x EBITDA multiple or a cap rate of approximately 7.4% on 2024 estimated results. The properties are each expected to rank among our top 25 assets based on estimated full year 2024 results, with an expected combined RevPAR of $275, RevPAR of $435 and EBITDA per key of $58,550, further improving the quality of our portfolio. The newly built LEED silver complex opened in 2022, and stands directly across from the 2.1 million square foot music city convention center adjacent to the Bridgestone Arena, which is home of the NHL Nashville Predators, and within a 10-minute drive of Nissan Stadium, the Country Music Hall of Fame Museum, Vanderbilt University, Tennessee State University and Centennial Park. It sits on 1.2 fee simple acres in Nashville, Spain Lower Broadway Entertainment District.
The 2 hotel complex has a combined 721 oversized rooms that average approximately 500 square feet with a 75% suite mix. The properties offer 7 separate food and beverage outlets, including [indiscernible] rooftop at the 1 Hotel, which provides guests with exclusive views of Music City skyline in an elevated night life setting. Other amenities include a spa, 2 fitness centers, a yoga studio and 33,000 square feet of shared meeting space. From 2000 to 2023, the Nashville hotel market had a RevPAR CAGR of 7.7%, even while absorbing new supply. It is the #2 ranked convention destination in the United States and the convention center has continued to set record attendance numbers by attracting larger events with promising definite bookings in future years.
The new Nissan Stadium, home of the NFL Tennessee Titans, is also expected to generate increased demand as the stadium zone attracts more entertainment and sporting events with year-round activation. In addition, Nashville has the fastest-growing airport in the United States with current passenger traffic 33% above 2019. The recent $1.5 billion airport expansion added 6 international gates and 8 satellite gates. And another $1.5 billion expansion is already underway, with expected completion in 2028. While supply growth is expected to continue in Nashville, most projects are in the planning stages and in the select service chain scale. We believe the 1 Hotel Nashville and the Embassy Suites by Hilton Nashville Downtown are highly differentiated from the future supply due to their central location and diversified product offerings, which provide distinct value propositions to customers and guests.
With multiple demand generators and no expected near-term capital expenditure requirements, we believe the combined properties will stabilize at approximately 10 to 12x EBITDA in the 2026 to 2028 time frame, driving additional value creation for our portfolio. Due to the timing of the acquisition, the 1 Hotel Nashville and the Embassy Suites by Hilton Nashville Downtown are not yet included in our comparable hotel guidance metrics, but will be included starting in the second quarter. The acquisition is expected to generate $29 million of adjusted EBITDA for our ownership period, which is included in our adjusted EBITDAre and FFO guidance for 2024. Looking back on our transaction activity. We have acquired $4 billion of assets since 2018 at a 13.5x EBITDA multiple and disposed off $5 billion of assets at a 17x EBITDA multiple including $976 million of estimated foregone capital expenditures.
This accretive capital recycling has allowed us to grow our adjusted EBITDAre and dividend in excess of full year 2019 levels as we continue on the path towards $2 billion of adjusted EBITDAre. As we have demonstrated, we believe Host is well positioned to continue capitalizing on value-enhancing acquisition opportunities. After adjusting for post-quarter transactions, we have $1.7 billion of total available liquidity and net leverage of 2.3x, and we will continue using our size, scale and relationships to uncover more acquisition opportunities. Turning to portfolio reinvestment. Our 2024 capital expenditure guidance range remains $500 million to $605 million, which reflects approximately $225 million to $280 million of investment for redevelopment, repositioning and ROI projects.
During the first quarter, we started the Hyatt Transformational Capital program renovations at the Grand Hyatt, Atlanta and the Grand Hyatt, Washington, which we expect to complete in the first half of 2025. We received $2 million of operating guarantees in the first quarter to offset business disruptions related to the Hyatt Transformational Capital program and we expect to benefit from an additional $7 million in 2024. More broadly, we have completed 24 transformational renovations since 2018, which we believe provide meaningful tailwinds for our portfolio. Of the 12 hotels that have stabilized post renovation operations to date, the average RevPAR index share gain is 8.5 points, which is well in excess of our targeted gain of 3 to 5 points.
Wrapping up, we believe Host is well positioned to continue to outperform. Our successful capital allocation strategy has allowed us to deliver 2023 adjusted EBITDAre and adjusted FFO per share above 2019 levels, outperforming the other full-service lodging REITs. We are encouraged by the supply picture for our markets and chain scales, which remains below historical levels. The improving international demand imbalance, the continued improvement in business transient demand and increased activity in the transactions market. We believe our EBITDA growth profile, our investment-grade balance sheet, our diversified portfolio and our continued portfolio reinvestment are key differentiators. As we have demonstrated, Host can and will continue to do it all.
With that, I will now turn the call over to Sourav to discuss additional operational detail and our revised 2024 outlook.
Sourav Ghosh: Thank you, Jim, and good morning, everyone. Building on Jim's comments, I will go into detail on our first quarter operations, updated 2024 guidance and our balance sheet. Starting with business mix. Overall transient revenue per available room was down 6% compared to the first quarter of 2023, driven by tough comparisons, including the evolving nature of demand in Maui, unseasonable weather in many markets and unanticipated renovation delays at the Singer Oceanfront Resort. Combined, we estimate that the renovation delay and Maui had a 440 basis point impact to transient RevPAR in the quarter. However, leisure rate is still strong. Transient rates at our resorts remained resilient at 52% above the first quarter of 2019 and resort food and beverage outlet revenue per occupied room grew over last year.
Gulf revenue continued to grow the record levels set in the first quarter of the last 2 years despite the impact from our Maui golf courses. Looking ahead to holidays in the second quarter, for Memorial Day weekend, transient room revenue pace for the overall portfolio is up over last year and up high single digits, excluding Maui. We are still outside the primary booking window for July 4, but thus far, we are encouraged by strong bookings in San Diego, Houston and New York. Business transient revenue per available room was 5% above the first quarter of 2023 driven by an increase in rate and room nights as business transient demand continued its slow and steady recovery. Seattle, Boston, and San Francisco led room night growth, and both New York and Boston are within 2% of pre-pandemic demand.
Turning to group. Revenue per available room was up 4% in the first quarter, driven by room night growth in San Diego, San Francisco, Orlando and Maui. Notably, group room night volume reached 96% of the first quarter of 2019 levels, led by corporate and SMERF groups. For full year 2024, we have 3.6 million definite group room nights on the books, representing a 17% increase since the fourth quarter and putting us ahead of same time last year. Group rate on the books is up 4%, and total group revenue pace is up 7% over the same time last year. As Jim mentioned, our banquet and catering contribution per group room night in the first quarter was at an all-time high, coming in approximately 1% above the prior record set in the first quarter of 2023.
We continue to be encouraged by the ongoing strength of group business as evidenced by strong pace, lingering booking windows and double-digit citywide room night pace in key markets such as Nashville, New Orleans, San Antonio, Seattle and Washington, D.C. Shifting gears to margins. As expected, margin declines year-over-year were driven by increases in wages, benefits and fixed expenses as well as impacts from Maui. Despite these headwinds, our comparable hotel EBITDA margin was 31.2% in the first quarter, representing a 30 basis point increase over 2019 as a result of our continued efforts to redefine the operating model. We expect year-over-year margin comparisons to improve as the year progresses. Turning to our revised outlook for 2024.
The midpoint of our guidance continues to contemplate steady demand in travel and low supply growth. Our expectations for the year are driven by improvements in group business, a gradual recovery in business transient, softer short-term leisure transient demand and a continued evolution of demand on Maui as the island recovers from the recent wildfires. At the low end, we have assumed slow group pickup and softer leisure transient demand. And at the high end, we have assumed a faster recovery at our Maui resorts and increased group pickup. For full year 2024, we anticipate comparable hotel RevPAR growth of between 2% and 4% over 2023. We expect comparable hotel EBITDA margins to be down 80 basis points year-over-year at the low end of our guidance to down 30 basis points at the high end.
Notably, we expect comparable hotel EBITDA margins to be up 10 basis points at the midpoint versus 2019 despite an estimated 20 basis point margin impact from Maui. At the midpoint of our guidance range, we anticipate comparable hotel total RevPAR growth of 3.7% and comparable hotel RevPAR growth of 3% compared to 2023. This 100 basis point reduction in our RevPAR growth midpoint is driven by lower-than-expected first quarter results, underperformance in Maui and softer-than-expected short-term leisure transient demand. That said, the strength of out-of-room revenues allowed for total RevPAR to decline only 60 basis points relative to our prior midpoint. We expect a comparable hotel EBITDA margin midpoint of 29.6%, which has improved 30 basis points from our initial guidance and is now only 50 basis points below 2023.
We estimate the Maui wildfires will impact full year comparable hotel TRevPAR by 90 basis points, RevPAR by 130 basis points and comparable hotel EBITDA margin by 20 basis points. We also expect a 50 basis point impact from property taxes and insurance. In terms of RevPAR growth cadence for the year, we expect comparable hotel RevPAR growth to be flat to low single digits in the first half of the year based on the drivers I just mentioned. We continue to expect mid-single-digit comparable hotel RevPAR growth in the second half of the year as a result of strong group booking pace, less renovation disruption compared to the second half of 2023, and the diminishing year-over-year impacts of the Maui wildfires, which occurred in August of 2023.
Our revised 2024 full year adjusted EBITDAre midpoint is $1.670 billion, a $35 million or 2% increase over the prior quarter. This includes an expected additional $8 million from business interruption proceeds related to Hurricane Ian, $20 million of business interruption proceeds related to the Maui wildfires, an estimated $62 million contribution from operations at The Ritz-Carlton, Naples, which is up from $60 million in our prior guidance and $6 million from operations at Alila Ventana Big Sur, a decline of $10 million compared to our prior guidance. As a reminder, Ritz-Carlton Naples and Alila Ventana Big Sur are excluded from our comparable hotel set for the full year 2024 forecast. Our adjusted EBITDA and FFO guidance also includes an estimated $29 million contribution from the 1 Hotel Nashville and Embassy Suites by Hilton Nashville downtown.
Turning to our balance sheet and liquidity position. Our weighted average maturity is 4.3 years at a weighted average interest rate of 4.7% after repaying the $400 million Series G senior notes in April. As Jim noted, we currently have $1.7 billion in total available liquidity, which includes $231 million of FF&E reserves. Our quarter end leverage ratio adjusted for post-quarter transactions was 2.3x, and we have $1.3 billion of availability on our credit facility. Also, since our last call, Moody's upgraded the company's issuer outlook from stable to positive. Further, in April, we paid a quarterly cash dividend of $0.20 per share demonstrating our commitment to returning capital stockholders. As always, future dividends are subject to approval by the company's Board of Directors.
We will continue to be strategic and opportunistic in managing our balance sheet and liquidity position as we move through the remainder of 2024. To conclude, we believe our best-in-class portfolio and balance sheet uniquely position Host to capitalize on opportunities for growth in the future. With that, we would be happy to take your questions. To ensure we have time to address as many questions as possible, please limit yourself to one question.
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